Game Design, Programming and running a one-man games business…

A short rant about UK tax

cliffski

…not about it being too high. I think its probably ‘about right’ myself, and there are arguments in both directions, and I don’t want to get into that. My complaint is not that we are taxed too much, bu that we are taxed really badly. Theoretically our income tax system is simple enough:

Basic rate band:  £0-32,000 charged at 20%

Higher rate band: £32k- £150k charged at 40%

Additional rate band: £150k+ charged at 45%

All well and good. A few needless cliff-edges there, having a band between 32 and 150k wouldn’t exactly over-stress modern computers methinks. If life for a UK tax payer was this simple, it would be great. the thing is, we have a load of other bullshit:

  • ‘Tax credits’ are a thing that are basically benefits, but the government didn’t want to call them benefits so they get called tax credits instead, and are not credits against tax.
  • If you earn over £100k, the government starts taking away your ‘personal allowance’ of tax-free income at a marginal rate of 50%. This was a kludge to fix a bodged budget one year that nobody has the balls to fix.
  • As well as income tax, there is capital gains tax, which is totally different rates, at different bands, on money from different sources.
  • ‘National Insurance’ is a tax on employment paid by employers AND employees, again at totally different rates and rules. Its essentially just more tax, and makes no sense whatsoever to be separated from income tax.
  • TV License, is a tax you have to pay to use a TV, or a computer capable of receiving a TV signal. Theoretically you don’t HAVE to have one, but in practice everyone does, and a totally separate regime of costs, enforcement and collection takes place. FFS roll this into income tax.
  • Car Tax. This is a tax (technically a duty) for owning a car, even if you never drive it once. This is again, set, enforced and collected in an entirely different way to…
  • Fuel tax. A tax for using a car, assuming that its a petrol/diesel car.
  • VAT. A sales tax, whose rules are complex enough to be laughable. Some biscuits have VAT on them. other biscuits do not, depending how they are made. I wish I was kidding. I’m not.
  • Stamp Duty. This is a tax on buying a house, or buying *some* shares on the stock market. Apparently it seems to be designed to reduce market liquidity and reduce labour force mobility. No other explanation makes sense.

Essentially the UK tax system is one nobody in their right mind would design. We have several taxes (Car Tax, National Insurance, TV licenses) that could happily be abolished and rolled into a rise in income tax, but nobody has the balls to confront this and actually do it. The insane complexity of the system gives profitable work to an army of accountants who do their best to prevent the government collecting tax from the wealthy, whilst confusing the crap out of everybody else. The partisan state of British politics means that cross-party co-operation on issues such as tax-simplification is much needed yet impossible to achieve.

Eventually such system will collapse under their own stupidity. Countries like Italy and Greece show what happens when the majority of people start avoiding tax, you get more and more taxes to compensate for the evasion, leading to greater and greater evasion…

If I were Prime Minister, one of my first steps would be to abolish car tax and stick the revenue lost as an increase in fuel tax. I’d scrap stamp duty. I’d scrap the License fee and roll them both into income tax, and do the same with national insurance./

Accountants would hate me, but c’est la vie!

15 thoughts on A short rant about UK tax

  1. See I can see the argument for rolling National Insurance (which once was set aside for specific things but now isn’t) and the TV Licence (really out of date) into Income Tax. And I’m not a ffan of VAT which tend to punish the less well off.

    But taxes aimed to change peoples habits (such as a Car Tax that is lessened for people who’s cars are less environmentally damaging) seem sane.

    Also you missed the community charge which tends to again hit people less well off harder (as it’s not based on income but house prices and caps out quite low).

    I see where you’re coming from though.

      1. I think the logic is, if someone knows they’re going to have to pay a large tax up front, it’s more of a deterrant to buying an environmentally unfriendly vehicle than a fuel tax. Even if someone is only driving a little, millions of people driving a little in range rovers is bad in its summation.

        As one of the few people who don’t use television/iPlayer I would also prefer that doesn’t get rolled into one tax. I feel like as Netflix and Amazon Prime become more widespread, those services which are much cheaper than a television, don’t come with adverts and allow you to access the exact content you want are much more economical, and giving us the choice to do that for those of us who don’t leave our TV on all day is a good thing.

        I mean, I want to the option to opt out of television anyway so I can show that I reject that kind of insidious advertising in a documented manner and protest it economically. I don’t think a TV license is difficult for people to understand.

      2. I agree that the tax system does seem overly complex, I think there is a certain amount of mental accounting involved where by having lots of smaller taxes is more palatable to people than having it all lumped as one big tax.

        I don’t agree with your car tax point about “even if you never use it once” though.
        If you know you aren’t going to use your car again for a long time then you can just apply for a SORN, keep it off the road and you don’t have to pay car tax.
        If you decide to use it on the public highways then you need to tax it.

        As Simon pointed out, it’s also a way of influencing people’s behaviour.
        Also I know of several people that don’t own cars and would be very unhappy if they started paying for one through their income tax.
        If you then start adjusting income tax deductions according to whether you have a car or not to accommodate those people then that becomes a pain for the tax office that have to implement it and you might as well just have a separate tax as it is now.

        Logically, it would make more sense to tax people on the miles and the areas they drive through some sort of tracking system, rather than an all encompassing car tax. That way congestion charges could be rolled into it, while people who rarely use their car wouldn’t be taxed so high.
        However, there’s a whole personal freedom can of worms right there.

        So not quite a simple thing to change imho, which is probably why nobody’s really grasped that nettle especially media phobic politicians!

        1. I definitely agree non car owners shouldn’t pay for car tax, but that it should be on fuel, or as you say, a congestion charge. I’m a big fan of road pricing in principle. Why should a 70 year old woman who drives her car 2 miles a day to the village and back really be subsidizing the motorway travel of travelling sales execs?

  3. “abolish car tax and stick the revenue lost as an increase in fuel tax”

    This is conveniently self serving for someone who drives a Tesla. Perhaps the appropriate thing to tax is car tires, based on expected durability.

    The US capital gains tax depends on income band, how the relevant capital assets are held, how long you have held it for, what type of asset it is, what you do with the proceeds of the sale within a time window of sale, whether you sold or bought similar assets within a time window of your sale, and I’m probably missing some other factors.

  4. Another resistance to sorting out the tax structure is that any change causes a certain amount of extra confusion as people try and work out what’s changing.

    Also no politician will ever run on a firm plan to rationalise it all, because someone will always be worse off.

    I’m certain the civil service have occasionally looked into what a slimmed down tax system would look like. Maybe someone could FOI asking to see those reports.

  5. I totally agree about scrapping most forms of tax and just rolling them into income tax. Possibly one of the reasons that hasn’t been done, aside from the other reasons mentioned, is the feared reaction of the tabloids if the government tried to roll the other taxes into Income Tax (and therefore have to raise it). The tabloids have a habit of manipulating news stories to sell more papers. I suspect a headline like “Government taking more of your hard-earned cash!” would sell more papers than “Government simplifies taxes”.

  6. I think the reason the TV license is separate is to keep reporting and journalism fully independent of government. Annoying, but good in principle, methinks. (I might be wrong about this, as I’ve spent only three years in the UK so I migbt be misunderstanding what this money is used for.)

    German tax is similarly byzantine btw. But indeed nothing compared to the US.

  7. Fully agree on most points. Some things to keep in mind though:

    VAT affects non-domestic travelers, income tax doesn’t. You can try to argue about taxes on the profits of domestic businesses etc., but it’s clear that the two are not quite a 1:1 replacement.

    Stuff like ‘National Insurance’ is really silly, but I think it may be a political necessity (a kind of “theory of the second-best” I guess). Basically, it’s a way to very explicitly earmark of a part of the “effective income tax” so that anti-social-safety politicians are prevented from doing too much damage.

    1. However, it’s an extra tax that specifically targets ‘middle’ earners and drops off at higher levels, and so is weird.

      Also, it’s only paid by people in work – so not pensioners or the very rich.

      There’s also Child Benefit, which is a universal income recouped from tax (yay! a good plan) but poorly implemented as it depends on which parent earns more above a certain threshold.

      So one person who gets Child Benefit but earns £55,000 pays back 50% of it as tax, if they’re the main earner.
      Another person who gets Child Benefit and earns £55,000 pays back 0% of it as tax if the other parent earns more.
      A single parent who earns £60,000 pays back 100% of it.
      A couple who earn £100,000 split evenly between them pay back none of it.

  8. Funny, you can find-and-replace Britain into Belgium and the entire article still works. Except the rates are higher at drastically lower rates (50% starts at 32,000 or something)

  9. My perfect income tax code would have two rates. 0% and 40%, and abolish all of the credits and other BS.

    0% for low income people, whatever 20 hours x 52 weeks x minimum wage is.
    40% income tax on everything earned above that.

    That way governments can’t play voters off eachother by saying “we’ll give you this, and make someone else pay it!”. If everyone pays the same rate then there is no one else, voters will know that THEY are paying for everything, and maybe we’ll end up with governments that aren’t so wasteful/corrupt/careless with our money.

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